The Costco Casket: Funeral Homes Must Accept It

I was recently reading through some of Peter Lynch’s old books and essays (One Up On Wall Street, Beating The Street, etc.), searching either for wisdom I missed my first time through or to refresh basic concepts that had drifted too far to the back of my mind. Other than Munger, Graham, Buffett, Neff, and Schloss, Peter Lynch is probably the one man that has influenced my own investment decisions the most.

Lynch taught me that it is important to separate emotion, prejudice, biases, and even sexiness from the underlying reality. I credit him for teaching me to pick up Johnson & Johnson stock in the mid $60s when no one wanted it, even though it was clear that the profits were improving despite the string of product recalls. It helped me pick up shares of Bank of America in the $7-$8 range, as the bank’s maligned reputation during the financial crisis did not match the fact that the bank had bolstered its Tier 1 Capital Ratio and become a much safer bank compared to where it was in 2008 and 2009.

The example that Lynch gives to illustrate this principle is that, when you own the entirety of private businesses, it makes sense to take the “sexiness” factor into account because it generates emotional utility and goodwill in your local community. If you own the $25 million brewery or the baseball team in town, people will want to be your friend (interestingly, one of the rumors explaining why Jerry Jones became the owner of the Dallas Cowboys is that he got annoyed being rich but not beloved, and after not being able to get a last-minute reservation at a tony restaurant, he became the owner of the Cowboys so that he would never have to deal with that kind of “disrespect” again).

But, as Lynch points out, there is no reason to apply “sexiness” investing logic to your ownership stakes in publicly trades stock. A $10,000 investment in Apple does not confer any benefit relative to a $10,000 investment in Waste Management unless it has a higher growth rate, better valuation, dividend prospects, etc. There probably aren’t a whole lot of people out there who have been holding onto Service Corporation International for the past twenty-five years, even though every $10,000 invested into the funeral provider then would be worth over $60,000 today. Embalming, cremation, and cemetery accumulation isn’t exactly a feel good industry, and this creates an opportunity for mispricing because the company’s stock price might reflect these emotions rather than the underlying fundamentals.

Incidentally, Peter Lynch’s argument that trash and funeral homes don’t get much loving sent me on a five-hour diversion into the study of funeral home operations, and I was not particularly impressed by some of the behaviors of the big players in the industry that are collectively referred to as “Big Death.”

This opinion I found on Reddit of all places is a good synopsis that sums up just about everything I learned about the industry:

I’m a funeral director. Our entire industry is basically a pyramid scheme. It blows my mind how blindly people accept that certain things “have to” be done to the body of their loved one. Think about that for a second: this is the last tangible remnant of someone you loved and you are now going to pay stranger thousands (oftentimes HUNDERDS of thousands) of dollars to (warning: graphic from here on out) systematically mutilate that body.

There is nothing dignified about having one’s mouth wired shut, eyelids forced closed by spiked plastic contact lenses, and ramming a trocar into the abdomen to puncture organs so that they can be suctioned out. After the embalming fluid is introduced, the anus and vagina are stuffed with cotton and other absorbent materials to prevent what we refer to as “purge.” This charming phenomenon can occur any time after death – yes, before or after embalming, at any stage of decomposition – when the fluid created by tissues breaking down is leaked through any nearby orifice, oftentimes the nether regions.

The process creates an enormous environmental problem; using toxic chemicals which are flushed into our sewers along with those pureed livers, hearts, spleens, pancreas’ which then also flow into our sewers. Oh, what’s that? I told you embalming is a legal requirement for public sanitation? That’s utter bullshit. If anything, it creates a sanitation problem if the cemetery you use is anywhere near a municipal water line, which most “commercial” cemeteries are.

In fact, in most states, the law only requires embalming if you are transporting a body across state lines or are not planning to inter for more than 72 hours and/or having a public viewing. It has not a single thing to do with public health. It’s a cash cow, plain and simple. It is barbaric, costly, and does not keep the body from deteriorating. But we’ll tell you just about anything you need to hear to get you to agree to it.

What I’m doing here is incredibly illegal and I know it, but on the slim-to-none-chance that you’re a sharp-minded consumer in the midst of your grief and call my state’s licensing board about it, all I have to do simply tell them you were mistaken. I’ve seen funeral directors force-feed families absolute horseshit – saying anything – to get them to sign a contract. Here’s a hint: don’t sign any pre-printed “form” contracts. Most of the contracts we use are super vague, so we can charge you for just about anything and justify it by pointing to your signature on the dotted line. It is in your best interest to only agree to specific itemized charges – i.e., have the hearse but no limousines. Or have hair/makeup done without any embalming. The law is very specific and on your side, but we count on your ignorance and vulnerability.

Even better, find a trusted friend or family member who is more emotionally stable right now and appoint them as your lawyer/detective. You know that bitchy sister-in-law everyone has who makes major holidays a nightmare? I can spot her a mile away and will do everything I can to keep her out of financial discussions – because I know she will take that obnoxious nagging and throw it at me for every single penny I’m trying to get out of your family. See my co-workers standing around looking somber and respectful? They’re not there to just have a presence of authority, they are studying you. They are watching the family dynamic and will report back to me with any potential angles I can play to manipulate your emotions, which family members are taking it the hardest and will therefore be the easiest prey, and their estimation of your financial well-being. If, by the way, you appear to be less affluent, I’ll tell you to take your business elsewhere. This is not a hospital and I don’t provide a service – this is a business. If you aren’t paying me (in full and up front, generally), all you’re getting is my sympathy.

Do yourself a favor and read the FTC Funeral Rule. It’s very clear and concise in stating what you as the consumer are required to do and what rights you have. Did you know the casket I’m selling you for $5000 is really just a nicely decorated plywood box? If you were smarter, you’d know you don’t have to buy that from me. In fact, the law requires me to allow you to “BYOB.” Costco and Wal-Mart sell very reasonably priced nice caskets on their websites. If you happen to be armed with that tidbit of information, I’ll try to make it a practical issue: it will be easier to use the caskets we already have here. Another line of crap. All of the caskets at the funeral home are demo models (and are actually nice napping spots on slow days). Anything you buy will be delivered to the funeral home via freight the next day, just like the Wal-Mart caskets.

Another well-worn sales tactic is to try to shame you into going along with the exorbitant cost, implying you didn’t really love grandma enough if you spend less than five figures with me. You should know, by the way, that everything you buy from me – a guestbook, prayer cards, even the damn obituary notices – is marked up at least200%. See the picture I’m painting here, kids? Smoke and mirrors. It hasn’t always been like this, but with the corporatization of the death care industry, the almighty dollar is the only consideration anymore.

Whew, this is getting to be a novel. Sorry, hang with me just a bit longer – we are getting to the major issue here.

Right now – literally right now, August 16, 2013 – the FTC is reviewing a merger between the two largest funeral service corporations in the United States: Stewart and SCI. Stewart has 500-ish locations while SCI has 2000+. This will create a mega-Decepticon-conglomerate that will control at least 40% of all funeral service business transactions in this country – and that, my friends, is what antitrust regulations refer to as a monopoly. We are racing full speed ahead to the genesis of the McFuneralHome and nobody is doing anything about it. The reason? Misdirection. There’s no Stewart Funeral Home or SCI Mortuary in your hometown. They’re operating under the same names they always have, letting you believe that the good people of Bubba & Sons Memorial Chapels would never steer you wrong. Bubba’s been around for 50 years! Bubba’s handled your family’s funerals for generations! Let me tell you something: Bubba cashed out years ago and is pretty much a figurehead at this point. Check his websitecarefully: at the bottom, you’ll probably see a copyright for either “Dignity Memorials” (SCI) or “STEI” (Stewart).

Every single thing you’ve read in this thread about cutting corners, shoddy work, under-trained and under-paid employees, outsourcing certain processes, covering up mistakes… ALL OF IT HAPPENS IN THE FUNERAL INDUSTRY. Now, most of us are decent human beings and aren’t interested in getting freaky with dear old granny, but in terms of services performed and their actual value, you trust us WAY, WAY TOO MUCH.

You know how shitty the cell phone service provider market is right now and how worked up everyone gets about that? The funeral industry is worse. And we should all be raising hell, because EVERY SINGLE ONE OF US is going to have to conduct business with the deathcare industry eventually — be an informed consumer and know who you’re really giving your money to.

That comment was fascinating to me for a number of reasons because it discusses many of the mental models that can prevent you from making intelligent decisions: associating “money spent on someone” with “how much you love that someone”, the general tendency of people to defer to perceived authority figures, and the general vulnerability of making significant financial decisions during a stretch of time that could potentially be the most irrational of your entire life.

Through most of that passage, I kept thinking about the Warren Buffett warning to “Never ask the the barber if you need a haircut” in addition to the basic wisdom that it’s always wise to be prepared with information before making a financial decision. My guess is that most of the population has no idea about “The Funeral Rule” that gives you many rights in your dealings with funeral providers. Instead of entering a funeral home and saying, “Don’t I have the right to choose my own casket?”, I’d walk in and say, “I found this baller casket on Costco. Will you match the price? If not, what’s your mailing address where I should have it sent?” If you have a right, you assert it—you don’t ask for it.

Incidentally, my study of the trash and funeral industries didn’t lead me to the conclusion that I should invest in them. There’s not particular cheap valuations right now in either industry, and trash and death rarely experiences growth in excess of 7% for very extended periods of time. It’s one thing to be rewarded for owning things that are emotionally ungratifying. It’s quite another to own something that lacks appeal and gives you unsatisfactory returns.

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